S&P 500 wavers as bonds halt selloff before U.S. Fed

Stocks fluctuated, with traders awaiting more clues on the outlook for monetary policy as the Federal Reserve confronts the hottest inflation in four decades.

The S&P 500 struggled to find direction, while the technology-heavy Nasdaq 100 underperformed major benchmarks. Treasury 10-year yields retreated after jumping above 3 per cent and hitting the highest since November 2018. The dollar also fell.

Markets have whipsawed this year amid concerns about persistent inflationary spirals and risks to global growth from rising yields. Fed Chair Jerome Powell and his colleagues are expected to raise rates by 50 basis points on Wednesday and signal they’re on track to lift them to around 2.5 per cent by the end of the year. But it’s not clear if that’ll be enough to tame inflation, which is running at more than three times the central bank’s 2 per cent target.

The Fed will have to boost rates to as much as 5 per cent to ease price pressures just as the world faces a “perfect storm” of potential recessions in the U.S., European Union and China, former International Monetary Fund chief economist Kenneth Rogoff said. The U.S. central bank is dealing with dueling forces of inflation and slowing growth, with interest rates likely to reach 2.5 per cent by September, hedge-fund manager Paul Tudor Jones told CNBC.

“The anticipation of a change in policy seems to be more powerful than the actual event,” wrote Art Hogan, chief market strategist at National Securities. “When the Fed hiked rates back in March, the S&P 500 went on to rally about 10 per cent in the weeks after the meeting. We would not be surprised to see a similar pattern after this week’s meeting, as markets seem to sell on rumors, and buy on news.”

Key events this week: 

  • Fed rate decision, briefing with Chair Jerome Powell, Wednesday
  • EIA crude oil inventory report, Wednesday
  • Bank of England rate decision and briefing, Thursday
  • OPEC+ convenes virtually for a regular meeting, Thursday
  • U.S. April jobs report, Friday

Some of the main moves in markets:

Stocks

  • The S&P 500 was little changed as of 9:54 a.m. New York time
  • The Nasdaq 100 fell 0.4 per cent
  • The Dow Jones Industrial Average fell 0.2 per cent
  • The Stoxx Europe 600 was little changed
  • The MSCI World index was little changed

Currencies

  • The Bloomberg Dollar Spot Index fell 0.4 per cent
  • The euro rose 0.4 per cent to US$1.0551
  • The British pound rose 0.4 per cent to US$1.2536
  • The Japanese yen rose 0.2 per cent to 129.87 per dollar

Bonds

  • The yield on 10-year Treasuries declined seven basis points to 2.91 per cent
  • Germany’s 10-year yield declined five basis points to 0.91 per cent
  • Britain’s 10-year yield advanced two basis points to 1.92 per cent

Commodities

  • West Texas Intermediate crude fell 0.7 per cent to US$104.40 a barrel
  • Gold futures rose 0.4 per cent to US$1,871.40 an ounce